The shifting connectivity landscape: Who are the winners and losers?

As enterprises grow in sophistication, they are increasingly demanding next-generation services such as IT automation, Internet of Things (IoT), hyperconverged infrastructure, artificial intelligence (AI), container technology and edge computing. A recent survey from Spiceworks indicates that although the large enterprises are leading the charge, mid-size companies are just as interested in technologies and services that can propel their business forward.

Given the rise in cloud-based business applications such as enterprise resource planning (ERP) and customer relationship management (CRM) putting a large strain on their networks, IT leaders are looking for connectivity solutions that can scale with their business as it grows. Add in the growing list of software-as-a-service applications such as Slack, Teams and Zoom — all of which skyrocketed in use during the ongoing COVID-19 pandemic — and it’s easy to see why enterprises need high-capacity, highly reliable connectivity.

The enterprise connectivity market is worth hundreds of billions of dollars, making it lucrative for many service providers. According to analyst firm Statista, business internet traffic in the U.S. is expected to reach 224 exabytes of data in 2023, a staggering 397% increase from 45.1 exabytes in 2016. The demand for fiber is strong, but two challenges threaten growth:

There’s not nearly enough fiber in the ground to meet this growing demand.
Scaling at a pace to keep up with the growing demand means a sizable fiber investment from service providers — something most might not be able to do or have interest in supporting financially.

For years, enterprise connectivity was dominated by traditional telephone companies (LECs) and cable companies (MSOs). However, over the past two decades, fiber providers have entered these markets, offering higher speeds and deeper coverage than the traditional network operators. In some cases, these providers are the result of consolidation among smaller players. Additionally, mobile network operators (MNOs) are vying for a piece of the action.

More recently, greenfield fiber operators have emerged, building dense networks in specific markets where demand is growing, but fiber density is comparatively low. They’re also supplementing their own network buildouts through acquisition.

In this burgeoning connectivity landscape, who are the winners and losers when it comes to connecting the enterprise? Let’s take a look at the status of each of the competitive set:

LECs

Traditional telephone companies are fairly distracted in approaching the enterprise marketplace. They have the capital to deploy fiber to the enterprise, but also have many other initiatives pulling at those resources. Additionally:

They have traditionally been focused on residential and business-dense areas. In light of the COVID-19 pandemic, they have seen shifts in network traffic that impact network capacity and design.
Their networks often lack the capacity needed to adequately service the increased bandwidth needs of the enterprise, often requiring 10 Gbps and more.
They are facing pricing compression at the low end of the market.

THE LOWDOWN: While it seems they are beginning to recognize that fiber is the bedrock upon which their long-term strategies must be built, LECs may have missed their moment to maintain business clients and grow with them; they have the capital but have been rather intermittent in focusing it on fiber construction to increase network capacity. Additionally, they are limited by their footprint in that they generally do not build networks beyond their traditional service areas.

MSOs

MSOs are also distracted in approaching the enterprise marketplace. They are facing intense competition on two fronts. On the cable front, OTT players such as Hulu, Netflix and Disney+, among others, have eroded their cable revenues. On the enterprise connectivity front, their fiber networks have been somewhat cobbled together, not pre-planned, making upgrades to their DOCSIS-based systems difficult.

Much of their capital is spent defensively against customer erosion.
They’re currently building out small amounts of fiber in markets that help their current customer set.
Like the LECs, they are spending significant capital in many different areas.

THE LOWDOWN: MSOs may be fighting the competitive battle on too many fronts to be successful in all. They may need to concede the enterprise market as a result.

MNOs

MNOs are moving full-speed ahead with 5G and that has monopolized much of their attention — and capital. 5G wireless connectivity is coming online in some areas of the U.S. but building and deploying the networks that support it is cumbersome, to say the least. They:

Need to be prepared to purchase fiber access from other providers to move their 5G plans forward — but want partners who focus on the enterprise as well.
Require high-density and fiber-rich networks to partner with on 5G so they can move fiber closer to towers and small cell networks.
Face a long road before realizing growth and market share with small and medium businesses given the complexities of deploying in-building small cell sites.

THE LOWDOWN: Partnerships will be critical for the MNOs, who may struggle significantly if they try to go it alone.

Fiber providers

Because they’re focused squarely on carefully planned rollouts, fiber providers are well-positioned to find success with the enterprise. Fiber providers are building out networks where enterprises are growing, usually in the suburban areas.

Customers with multi-location facilities can utilize services from these providers across their coverage area.
Contracts are long-term, in some cases up to 60 months.
Fiber providers are an enabler of 5G, and MNOs are looking to find high-density and fiber-rich networks to partner with on 5G.
Fiber providers are building dense networks, with up to 400 GbE services.

THE LOWDOWN: Only providers with a true core competency in building fiber are positioned to win in this market. Fiber providers have a clear yet diverse customer base, with a multi-year tailwind of growing demand.

The winning combination

While all the groups above compete with each other, they also are partners in many cases as they seek to meet the demand of a growing enterprise market. Success in serving the enterprise market will be determined by who is executing the best as well as by who has the capital to focus on growing this market. In many cases, fiber companies check off the most boxes that are the lynchpin for enterprise growth. As no one goes it entirely alone; we may see success in many forms and across several partnerships.

The true winner, however, is the enterprise. As enterprises seek to compete in their own industries and adopt new high-bandwidth applications to help them do so, a competitive fiber landscape gives them new choices that lead to creating competitive advantage. A partnership with a fiber provider provides them the high-capacity, scalable network they need to thrive in this new environment.

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